Correlation Between Sinocat Environmental and Lingyuan Iron

Can any of the company-specific risk be diversified away by investing in both Sinocat Environmental and Lingyuan Iron at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Sinocat Environmental and Lingyuan Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sinocat Environmental Technology and Lingyuan Iron Steel, you can compare the effects of market volatilities on Sinocat Environmental and Lingyuan Iron and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Sinocat Environmental with a short position of Lingyuan Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinocat Environmental and Lingyuan Iron.

Diversification Opportunities for Sinocat Environmental and Lingyuan Iron

0.83

Correlation Coefficient

Sinocat Environmental  Lingyuan Iron

Very poor diversification

The 3 months correlation between Sinocat and Lingyuan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sinocat Environmental Technolo and Lingyuan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingyuan Iron Steel and Sinocat Environmental is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Sinocat Environmental Technology are associated (or correlated) with Lingyuan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingyuan Iron Steel has no effect on the direction of Sinocat Environmental i.e., Sinocat Environmental and Lingyuan Iron go up and down completely randomly.

Pair Corralation between Sinocat Environmental and Lingyuan Iron

Assuming the 90 days trading horizon Sinocat Environmental Technology is expected to generate 1.65 times more return on investment than Lingyuan Iron. However, Sinocat Environmental is 1.65 times more volatile than Lingyuan Iron Steel. It trades about -0.01 of its potential returns per unit of risk. Lingyuan Iron Steel is currently generating about -0.09 per unit of risk. If you would invest  1,968  in Sinocat Environmental Technology on December 1, 2024 and sell it today you would lose (133.00) from holding Sinocat Environmental Technology or give up 6.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Sinocat Environmental Technolo  vs.  Lingyuan Iron Steel

Sinocat Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sinocat Environmental Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sinocat Environmental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lingyuan Iron Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lingyuan Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sinocat Environmental and Lingyuan Iron

The main advantage of trading using opposite Sinocat Environmental and Lingyuan Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sinocat Environmental position performs unexpectedly, Lingyuan Iron can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Lingyuan Iron will offset losses from the drop in Lingyuan Iron's long position.

The idea behind Sinocat Environmental Technology and Lingyuan Iron Steel pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.